I presented this deck at the 2014 PreMoney Conference. I wrote a blog post here that goes into more detail: http://bit.ly/ChangingVC The video of the presentation I gave is here: http://youtu.be/5MClCBUjbbE The VC industry is changing. The press has focused on the wrong story - crowd funding. The bigger story is the shift from public financing to private financing and the bifurcation of the venture industry. This presentation examines the case.

1. THE SHIFTING VC
LANDSCAPE
Mark Suster - @msuster

2. 2
To read my full blog post about this
presentation and watch the video see
links in description below.

3. 2014 appears to be the most active for LPs
the since recession
$23.1
$34.6
$36.0
$29.5
$12.6
$19.5
$24.7
$20.3
$18.4
$40
$35
$30
$25
$20
$15
$10
$5
Source: 2Q 2014 Pitchbook US Venture Industry Datasheet . Annualized 2014 fundraising based on 49 funds closed in Q1. PwC “Asset 3 Management 2020”
$8.8
159
183
164 171
102
121
97
132
147
~200
250
200
150
100
50
0
$-
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Est
Capital Raised ($B) # of Funds Closed
Q1

4. The Dot Com
skepticism from
LPs has finally
thawed, but
some things
have changed…

5. Seed funds now a well accepted norm (67%
of all funds). Starting to hear talk of “seed co-investment
or opportunity funds”
33%
Share of VC funds raised < $50M
40%
*As of Q1 2014. Source; Q2 2014 PitchBook US Venture 5 Industry Data Sheet
54%
67%
2008 2010 2012 2014*
Represents 6% of total $ raised

6. But overall LP capital has continued to
concentrated in later-stage funds with 66%
of all money in big funds
Share of VC $ funds raised > $500M
39% 43%
*As of Q1 2014. Source; Q2 2014 PitchBook US Venture 6 Industry Data Sheet
59%
66%
2008 2010 2012 2014*

7. Traditional VC is what has been impacted
the most decreased in dollars and funds
44%
# of Funds (%)
$100M - $500M
33%
23%
18%
2008 2010 2012 2014*
53%
$ Funds Raised (%)
$100M - $500M
*As of Q1 2014. Source; Q2 2014 PitchBook US Venture Industry Data 7 Sheet, Atelier Advisors
45%
32%
26%
2008 2010 2012 2014*

8. Some obvious factors driving later stage LP
investment
8
q Pension funds & other large asset managers
need to write big checks
q FoFs need to show they have access to the
top historical winners
q Continued perception / narrative of “the best
and the rest”
But this is too simplistic

9. The market is actually bifurcating
9

10. The structure of the startup / venture
market has started to change
10
1. Startups staying private longer prior to IPO
2. More value captured by private investors
3. VC funds thus raising more growth &
opportunity funds to back pro-rata in winners

11. Companies are raising larger amounts of
capital before going public
$49
Median amount raised prior to IPO ($M)
$43
Source: Dow Jones Venture 11 Source 2014 via EY
$72
$83 $78
$101
2008 2009 2010 2011 2012 2013

12. Capital sources for late-stage private
companies up dramatically
• Hedge funds
• Mutual funds
Traditional
VC investors
12 Source: CB Insights
Traditional
public investors
• Growth
funds
• Opportunity
funds
Moving
Later
Moving
Earlier
New
Corporate
VC Entrants
• Google
• Rakuten
• Alibaba

13. IPOs are happening, they’re just being
delayed
2 3 2 2 2 1
Source: NVCA 2014 Yearbook 13 - Thomson Reuters
21
17
9 13
2008 2009 2010 2011 2012 2013
No. of IPOs with market cap > $1B
No. of IPOs with market cap > $10B

14. So private investors capture more value,
encouraging greater pre-IPO funding. Early
investors want to capture pro-rata
Current market cap:
$125B+
$150B+ $340B+
$0.2 $0.4 $0.8
$4.3
$18
$104 $150+
Cisco Amazon Microsoft LinkedIn Twitter FB Alibaba
(est)
Market Capitalization at IPO ($B)
Previous Tech Cycle New Tech Cycle
Source: Quigley Report 14 2011, FLAG Capital

15. But this is not 2000.
15
This is not 2000

16. The Kauffman Report was wrong. It’s
morning in VC
50x more internet users: 2.4B in 2012, 44M in 1995
120x faster online speeds: 6.7 mbps US average today
vs. 56k modems
People are mobile: Personal, location aware. US has 164M
smartphone users & 119M tablet users in 2014.
People are socially connected: 1.3B+ MAU on FB,
250M+ on TWTR, 300M+ on LNKD.
Credit cards on file: 1B+ digital shoppers and $1.5T
ecommerce spend globally. $35B Apple app store in 2014
Sources: U.S. Bureau of the Census, World Bank. As of Q2 June 2012. Akamai. 2014 Statista forecasts, 16 : eMarketer, WSJ

17. Public company startups are significantly
more mature than their 1.0 counterparts.
Years to IPO
(from 1st financing)
3.1
7.4
IPO in '00 IPO in '13
Revenue ($M)
$35
$102
IPO in '00-01 IPO in '13-'14
Valuation/Revenue
13.3x
Multiple
Source: Age from NVCA 2014 Yearbook – Thomson Retuers, Revenue & Multiples from Pitchbook Tech Valuations Presentation 17 (June 2014)
5.3x
IPO in '00-01 IPO in '13-'14

18. But late-stage private financing still
produces some lofty late-stage valuations
When a concept works the competition is
fierce
More seed rounds as
costs decline & sources
of capital increase
Seed Stage Early Stage Later Stage
Source: Graphic 18 from Bullpen Capital
Larger
later stage
rounds after
Traditional VC validation
Today’s VC

19. Thus late-stage valuations have risen fastest
in past 4 years. That’s the trend to watch
carefully
Median Pre-Money Valuation ($M)
$3.2
$6.7
$19.9
$1,000
$100
$10
2010 to 2014 CAGR
Source: Source; Q2 2014 PitchBook US Venture Industry Data Sheet, 19 * As of Q1 2014
$37.1
$66.1
$5.9
$11.3
$28.1
$62.3
$155.0
$1
17% 14%
9%
14%
24%
Seed Series A Series B Series C Series D+
2014*
2010

20. THE SHIFTING VC
LANDSCAPE
Mark Suster - @msuster